Biofuels Industry Looks to Meet Strong Demand, Emission Needs

After weathering a winter of big stocks and low oil prices, the U.S. biofuels industry is looking forward to a strong year, thanks to growth in domestic gasoline demand and higher vehicle emissions standards ahead.

Brad Davis, Ag Processing Inc. (AGP) board chairman and CEO of Gold-Eagle Co-op and the CORN, LP ethanol plant in Goldfield, Iowa, said a burdensome supply of ethanol stocks early this year, which limited optimism, was met by a strong disappearance in stocks in the first quarter.

“Ethanol really looks like we’re going to have a good year for 2016,” he said. “It is hard to predict. I think it just surprised a lot of folks. We steadily dropped our stocks.”

That’s a good thing, since there’s a lot of corn that needs to move, he said.

“When we built our plant, one of the points we were trying to make was when the ethanol industry is very strong, you have more of a tendency to see the production side less robust. When production ag has fairly high corn prices, it is a little tougher on ethanol side,” Davis said.

Most ethanol plants have been paid off and can now manage production to meet needs; however, if a plant slows output to match decreased demand, production efficiencies also decrease, he said.

Record gasoline demand

Driving domestic ethanol demand is near-record levels of U.S. gasoline consumption. The U.S. Energy Information Administration’s June Short-Term Energy Outlook projected the highest annual average gasoline consumption on record in 2016, due to a 2.5 percent increase in highway travel.

Renewable Fuels Association Senior Vice President Geoff Cooper said, “Obviously what’s driving that is we see lower gas prices today, so people are driving more.”

Of the 143-144 billion gallons of gasoline that EIA projects will be consumed in the U.S. this year, more than 10 percent will be ethanol, Cooper explained.

To achieve the 10 percent usage, most gasoline is mixed with 10 percent ethanol; but some gasoline has no ethanol, while some, such as E-15 or E-85, contain higher percentages, he said.

Davis described ethanol’s 15 billion gallon market as a milestone for the industry.

“This is one of those things we’ve watched in the ethanol industry for years. Once we hit 9 percent, everybody was pretty excited about it,” Davis said.

High octane needs

Both Cooper and Davis said another key aspect of ethanol demand is the need for a clean, high-octane fuel.

Cooper said nearly all U.S. oil refiners have retooled their plants to produce low-octane fuels.

Despite crude oil prices in the $40 to $50 per barrel range, Cooper said ethanol still competes against other octane sources.

“We’re on pace to export slightly more than 1 billion gallons of ethanol this year, the second most in history,” Cooper said. “... We’ve seen China really emerge as a very robust export market just in the last six months.”

Looking ahead, Cooper said the industry is working with automakers to meet future vehicle fuel economy and emissions standards by utilizing ethanol’s high-octane properties.

“We see ethanol as having a major role in that,” Cooper said. “Ethanol has a very bright future because the world wants more octane.”

Biodiesel

On the biodiesel side, Iowa Biodiesel Board Executive Director Grant Kimberley said commercial fleets and ag users continue to be strong sources of demand for biodiesel.

Certainty regarding regulations in the market continue to be an issue for biodiesel processors, but consolidation has helped the industry manage tough market conditions, he said.

“Remember, we’re still a relatively young industry,” Kimberley said. “The industry is in a pretty decent place.”

Kimberley said mandates for clean air standards in big cities are likely to be a source of growth for the industry. He sees a bigger desire from around the country, especially the coasts, for a lower carbon-intensity fuel.

For farmers, there’s a lot of reasons why it makes sense to use biodiesel, Kimberley said.

Studies have shown biodiesel adds around 63 to 65 cents per bushel to soybean prices and also helps reduce the price of meal for livestock producers, since processors are making more meal, he said.

Over-the-road trucking is also an important source of demand, where the fuel is available at the pump, he said. Thanks to federal and state tax advantages, “it is kind of a no-brainer” for diesel use here in Iowa, Kimberley said.